A. Warranty provisions.

B. Inventory damage and theft.

C. Interest to be earned on credit sales.

10. Zimt AG reports 2007 revenue of € 14.3 billion. During 2007, its accounts receivable

rose by € 0.7 billion, accounts payable increased by € 1.1 billion, and unearned revenue

increased by € 0.5 billion. Its cash collections from customers in 2007 were closest to

A. € 14.1 billion.

B. € 14.5 billion.

C. € 15.2 billion.

11. Cinnamon Corp. began the year with $12 million in accounts receivable and $31 million

in deferred revenue. It ended the year with $15 million in accounts receivable and

$27 million in deferred revenue. Based on this information, the accrual - basis earnings

included in total revenue were closest to

A. $1 million.

B. $7 million.

C. $12 million.

12. Which of the following is least likely to be a warning sign of low - quality revenue?

A. A large decrease in deferred revenue.

B. A large increase in accounts receivable.

C. A large increase in the allowance for doubtful accounts.

13. An unexpectedly large reduction in the unearned revenue account is most likely a sign

that the company

A. Accelerated revenue recognition.

B. Overstated revenue in prior periods.

C. Adopted more conservative revenue recognition practices.

14. Canelle SA reported 2007 revenue of € 137 million. Its accounts receivable balance

began the year at € 11 million and ended the year at € 16 million. At year - end, € 2

million of receivables had been securitized. Canelle ’ s cash collections from customers

(in € millions) in 2007 were closest to

A. € 130.

B. € 132.

C. € 134.

15. In order to identify possible understatement of expenses with regard to noncurrent

assets, an analyst would most likely beware management ’ s discretion to

A. Accelerate depreciation.

B. Increase the residual value.

C. Reduce the expected useful life.

16. A sudden rise in inventory balances is least likely to be a warning sign of

A. Understated expenses.

B. Accelerated revenue recognition.

C. Ineffi cient working capital management.

17. A warning sign that a company may be deferring expenses is sales revenue growing at a

slower rate than

A. Unearned revenue.

B. Noncurrent liabilities.

C. Property, plant, and equipment.

18. An asset write - down is least likely to indicate understatement of expenses in

A. Prior years.

B. Future years.

C. The current year.

19. Ranieri Corp. reported the following 2007 income statement:

Sales 93,000

Cost of sales 24,500

SG & A 32,400

Interest expense 800

Other income 1,400

Income taxes 14,680

Net income 22,020

Ranieri ’ s core operating margin in 2007 was closest to

A. 23.7%.

B. 38.8%.

C. 73.7%.

120 Learning Outcomes, Summary Overview, and Problems

20. Sebastiani AG reported the following fi nancial results for the years ended 31 December:

2007 2006

Sales 46,574 42,340

Cost of sales 14,000 13,000

SGA 13,720 12,200

Operating income 18,854 17,140

Income taxes 6,410 5,656

Net income 12,444 11,484

Compared to core operating margin in 2006, Sebastiani ’ s core operating margin in 2007 was

A. Lower.

B. Higher.

C. Unchanged.

21. A warning sign that ordinary expenses are being classifi ed as nonrecurring or nonoperating

expenses is

A. Falling core operating margin followed by a spike in positive special items.

B. A spike in negative special items followed by falling core operating margin.

Date: 2016-03-03; view: 1006